Northvolt’s Downfall: A Lesson Learned in Sustainable Energy

Heavy snow blankets Skellefteå, a riverside city in northern Sweden, home to 78,000 residents. What was meant to become Europe’s largest and greenest electric battery factory, powered by the region’s abundant renewable energy, now stands as a cautionary tale. South of the Arctic Circle, Northvolt opened its flagship production plant in 2022, after securing multi-billion euro contracts with carmakers like BMW, Volkswagen, and Scania.

The Financial Plunge

However, financial troubles emerged last year. In November, the company reported $5.8 billion in debts and filed for bankruptcy in the US, where it aimed to expand. Since September, Northvolt has laid off about a quarter of its global workforce, including more than 1,000 employees in Skellefteå.

“I need to secure a job to extend my work permit. Otherwise, I have to exit the country,” one former employee lamented.

Maddy Savage

The Factors Behind the Collapse

Researchers attribute Northvolt’s downfall to several factors. First, the global dip in demand for electric vehicles (EVs) posed significant challenges. Volvo abandoned its target to only produce EVs by 2030 in September, citing a pace out of sync with customer and market demands. Additionally, China, the dominant player in electric batteries, has managed to undercut Northvolt’s prices.

Misinformed production targets, rapid expansion, and leadership issues were also cited. According to Andreas Cervenka, a business author and economics commentator for Swedish daily Aftonbladet, “To build batteries is a very complex process. It takes a lot of capital, time, and Northvolt didn’t have the right personnel running the company.”

The “Save the World” Mentality

Madeleine Eriksson, a geographer from Umeå University, noted that Northvolt’s approach was characterized by a “save the world mentality” that impressed investors, media, and politicians. However, she argues it glossed over the risks associated with being a start-up that didn’t attract enough investment.

Northvolt neither responded to multiple requests from the BBC nor provided insight into its future plans.

Seeking Fresh Investment

As Northvolt struggles, it has taken steps to recover. The company appointed Marcus Dangelmaier, previously from TE Connectivity, as the new head of operations in Skellefteå. The firm has also seen the resignation of CEO Peter Carlsson, who previously held positions at Tesla.

The company’s efforts to secure new investments mark a critical juncture.

Impact on Sweden’s Green Ambitions

Northvolt’s collapse raises questions about its impact on Sweden’s green future. Labeled the “Nordic Silicon Valley of sustainability,” Northvolt was part of a cluster of companies driving the region’s green transition. Other notable firms include Stegra (now H2 Green Steel) and Hybrit, developing fossil-free fuels using hydrogen.

Cervenka argues that Northvolt’s failure has damaged Sweden’s “very good brand” in green technologies. “There was a huge opportunity to build a champion and create a Swedish icon, but investors who lost money are hesitant to invest again,” he commented.

Joakim Nordin, CEO of Skellefteå Kraft, an early Northvolt investor, has observed negative public reactions. “I feel it myself when I travel now – even to southern Sweden and abroad – people ask questions,” he shared.

Cleantech Scandanavia

Putting the Crisis in Perspective

Despite Northvolt’s failure, Cleantech for Nordics, an organization representing key sustainability investors, believes in Sweden’s long-term potential. Climate policy analyst Eva Andersson stated, “It would be presumptuous to say the Nordics are doomed because one company has failed.”

Cleantech for Nordics highlighted over 200 clean tech investments in Sweden in 2023. According to Dealroom, 74% of venture capital funding went to impact companies, compared to a European average of 35%.

The Need for State Support

The Swedish government’s refusal to bail out Northvolt has raised concerns. Many advocate for increased state support to maintain the nation’s position in green technology. Andersson argues that the US and China, with massive support packages, are overtaking Europe.

Just 3% of global battery cell production occurs in Europe, trailing far behind Asian competitors, as per McKinsey research.

Getty Images

European Context

Sweden’s Minister for Energy, Business and Industry, Ebba Busch, maintains that Northvolt’s situation reflects challenges in Europe’s battery sector rather than a Swedish crisis. She advocates for EU rather than individual government support.

However, Busch faces criticism for sending mixed signals. Under the current government, taxes on petrol and diesel were reduced, and EV subsidies were abolished.

Cervenka commented, “The Swedish government is being criticized internationally for not fulfilling its climate obligations, which contrasts starkly with Sweden’s pioneering image.”

Looking Ahead

In Skellefteå, the sun sets early amid the snow. Joakim Nordin remains optimistic. “The criteria that attracted Northvolt to Skellefteå will continue to draw global players,” he says. His company recently collaborated with Dutch fuel company Sky NRG to develop large factories for fossil-free plane fuel by 2030.

“The publicity around Northvolt is affecting us now, but I hope it’s just a bump in the road,” Nordin adds.

Conclusion

Northvolt’s downfall serves as a reminder of the complexities involved in establishing sustainable industries. As the global push for green energy intensifies, the resilience of European startups and the need for sustained government support become critical factors.

While Northvolt faces significant challenges, the broader landscape of clean tech in Sweden remains promising, highlighting the enduring potential for sustainable innovation.

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